The revolution will not be subsidised

Can innovation prosper without public funding?

“I strongly believe that digital disruption is one of the most fundamental forces affecting our economy… How we respond could be critical to Australia’s future prosperity.”

You could be excused for thinking this quote is taken from a recent AFR interview with software entrepreneur and founder of Atlassian Mike Cannon-Brookes. Possibly a breath before he said, “the biggest problem the government has at the moment is that it doesn’t understand technology”.

In actual fact this quote is taken from Parliamentary Secretary for Communications MP Paul Fletcher’s June 11 speech to the Centre for Economic Development in Australia. But does the Abbott government truly understand the digital innovation sector or its potential as a future driver of growth in Australia?

Policy speaks louder than words, and economic analysts termed the 2014 Federal Budget as a blow against technology based industry in Australia. “It’s fair to say the budget was not friendly for the digital industries,” economics and policy partner at Price Waterhouse Coopers Jeremy Thorpe said.

Economic modelling conducted by PWC valued the potential contribution of digital innovation to Australia’s GDP as $136 billion in 2034, creating close to 540,000 new jobs in two decades.

“I think for the inexorable push towards digital [the budget] is a blip on the radar,” Mr Thorpe said. “On one hand not pushing money into that space is problematic but on the other hand I think we are seeing companies and governments pushing towards digital at such a pace that [the budget] is almost irrelevant”.

The Abbott government’s strategy for the Digital Economy, as laid out in their pre-election policy document, has similar faith in the private sector’s will to innovate.

A statement that drastically downplayed the integral role of the US Government in each of those examples. Peter Singer’s paper, released earlier this year and titled Federally Supported Innovation: 22 Examples of Major Technology Advances That Stem from Federal Research Support, debunked this myth of Silicon Valley’s self-reliance and vision.

“Consider this: without public investments, your iPod would cost $10,000 and be the size of a room,” Mr Singer wrote. The US Government funded the development of Apple’s multi-touch interface through grants and fellowships awarded to the University of Delaware, GPS was invented as an exclusive military technology and the microchips powering the iPhone owe their mass production and subsequent affordability to the buying power of US military and space programs.

Even Larry Page and Sergey Brin’s PageRank algorithm was originally designed with government support to index the National Science Foundation’s Digital Library. Their early search engine dubbed BackRub would soon transition to the commercial world as Google and revolutionise the internet.

NICTA was founded under the Howard government in 2003 to provide a similar incubation point for long term IT research and development in Australia. The organisation is currently looking for private investment as the recent budget cut all future federal funding to the program from 2016. Since its inception the program spawned 11 new companies to commercialise the research undertaken at it Sydney headquarters.

One such NICTA born start-up is Audinate, a provider of sound hardware designed to transport high quality, low latency, synchronized audio over general-purpose computer networks. The company’s 173% revenue growth in 2013 earned it the number 17 spot in the 2013 Deloitte Technology Fast 50, a profile of the fastest growing firms in Australia’s digital economy.

“Audinate's Dante networking technology has now become the de-facto world standard for live sound performance as the industry migrates from analogue to digital. Dante has been adopted by more than 150 manufacturers, including Bose, Yamaha and Shure,” David Myers COO and founder of Audinate said.

“NICTA was pivotal to the creation of Audinate. At a critical time where industry and businesses are changing so rapidly, we need NICTA to help create truly high tech companies - companies with deep technology that will build the technology ecosystem and generate long-term jobs and economic growth for Australia.”

However the importance of public funding to the digital industries is still a point of contention. “I think the longer term challenge is that pipeline of people coming through with the right skills,” Jeremy Thorpe said.

“This is about getting our education system right, it’s not very sexy and it’s easy to talk about money because it’s more immediate, but I think we’ve got a real challenge around getting that pipeline of skills.”

The great unknown is what effect the deregulation of university fees will have on that pipeline of science, technology, engineering and maths students. If the budget cuts to university funding coupled with a pricing fee-for-all cause STEM tuition fees to rise, it may shrink the pool of graduates available to the digital industries even further.

Analysis of 142 large public research universities in the United States found rising costs associated with studying engineering caused a 1.1% decrease in the number of engineering degrees awarded. While this is not a mirror image of the situation in Australia it displays a definite price impact on demand for degrees which could hinder the growth of Australia’s digital economy.

The future of Australia’s tech industries is by no account certain. Deregulated university fees may even provide a boost to the Australian STEM knowledge base. But the Abbott Government’s dogmatic belief in the innovative power of the private sector and subsequent cuts to public support of tech R&D show a fundamental misunderstanding of the origins of the digital era’s foundational technologies.

At the time of writing MP Paul Fletcher’s office had not responded to a request for comment.